Hiring stays strong. Unemployment is flat. But is a slowdown coming? Here's what May's job report shows.
U.S. employers added a robust 390,000 jobs in May as the labor market continued to defy high inflation, persistent worker shortages and rising interest rates.
The unemployment rate was unchanged at 3.6%, just above a 50-year low, the Labor Department said Friday.
Economists surveyed by Bloomberg had estimated that 325,000 jobs were added last month.
"Despite intensifying headwinds and recession concerns, the job market remains strong,” says economist Kathy Bostjancic of Oxford Economics.
While jobs tallies of around 400,000 in recent months have fallen below the pace of growth early this year, they've extended the market's impressive recovery from the depths of the pandemic, when the nation lost 22 million jobs. It has now recouped 21.2 million, or 96.2%, of those and could complete the comeback this summer.
With the economy rapidly approaching that milestone, job growth is expected to moderate now that many employees laid off early in the health crisis have been rehired. Employers added at least 400,000 jobs a month for 10 months, the longest such streak on record. The string had continued for 12 months but revisions in Friday's report nudged down March's gains to a still-booming 398,000.
President Joe Biden touted the jobs report as another sign of “the most robust recovery in modern history.” But in a speech from Rehoboth Beach, Delaware where he’s spending the weekend, the president also said he knows "Americans remain anxious" because of high inflation.
Biden said Americans should "feel confident that we'll meet these challenges,” and appeared to try to ease concerns of a possible recession, assuring that steps taken to tame inflation won't reverse the gains.
In May, leisure and hospitality, which includes restaurants and bars, the sector hit hardest by the pandemic, led the job gains with 84,000; professional and business services added 75,000; transportation and warehousing, 47,000; construction; 36,000; health care, 28,000; and manufacturing, 18,000.
Retailers, which have more than recovered all the jobs wiped out by the pandemic, lost 61,000.
Government added 57,000 jobs, mostly at state and local levels, but the big jump was likely artificially inflated by seasonal adjustments in education, Goldman Sachs says.
Private sector payrolls increased by 333,000, down from 405,000 in April and job growth is expected to gradually slow this year. Inflation has been hovering near 40-year highs and gas prices have soared, leading many consumers to rein in spending and prompting the Federal Reserve to sharply raise interest rates. That makes borrowing more expensive and is expected to further dampen economic activity and hiring.
“While the near-term labor market picture remains upbeat, labor demand is poised to ease later this year as companies cope with higher costs, reduced consumer demand and lower profitability,” Bostjancic wrote in a note to clients.
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Many Americans have streamed back into a favorable labor market, but others are still caring for children, fearful of COVID, switching careers or living off federal stimulus checks or other aid. Some drifted back into the work force in May. The number of people working or looking for jobs rose by 330,000, nudging up the labor force participation rate from 62.2% to 62.3%, still well below the pre-COVID level of 63.4%.
Others, especially people who retired early during the health crisis, will probably never return, says Gus Faucher, chief economist at PNC Financial Services Group. That, he says, will contribute to a drop-off in job creation. He expects monthly job gains to downshift to just over 100,000 by the end of the year.
Yet the recent increase in the supply of workers is helping temper sharp wage growth that has contributed to the inflation spike. Average hourly earnings rose 10 cents to $31.95 last month, lowering the yearly rise to a still hefty 5.2% from 5.5% the prior month and extending a recent trend of moderating pay gains.
The development could help convince the Federal Reserve to raise its key interest rate by a quarter percentage point in July to curtail inflation instead of the half point hike it tentatively plans, says Ian Shepherdson, chief economist of Pantheon Macroeconomics. The battered stock market would welcome such a move. Meanwhile, a second straight half point Fed rate hike this month is all but certain.
Bostjancic, however, says the generally strong jobs report supports half point hikes at both the Fed's June and July meetings.
Some factors appeared to support further strong gains last month. While COVID-19 cases have risen, hospitalizations remain low, Goldman Sachs says, and restaurant visits continue to hover near their prepandemic level. Many people are eager to resume traveling, shopping and attending festivals and sporting events this summer, though they’re scaling back their plans because of inflation, a Bankrate survey shows.
Contributing: Joey Garrison